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Contrary to Peter Navarro's bullish views on the stock market ("Four Bullish Trends," Other Voices, Nov. 12), I see signs of major trouble ahead.

The valuation of the stock market is derived from two variables: earnings and the price-to-earnings ratio. Both are likely to be under severe pressure in the next few years.

U.S. companies have done a superb job of expanding earnings in a slow-growth environment. With relatively small gains in revenues, corporations have been able to expand margins to the point where they are two standard deviations above normal. That's good news, but such leverage works on the way down as well as the way up.

Third-quarter earnings were the weakest year-over-year since the recession ended, and many firms reported flattening or declining revenues. The fact that Europe is sinking into deeper recession presents two problems: It's hurting multinational companies and putting renewed pressure on the euro, which causes foreign earnings to translate into fewer dollars.

The countries that have served as the growth engines of the world, China and India, are facing much slower growth rates. Thus, virtually all key economies outside of the U.S. are either declining or experiencing a major deceleration in their expansion rates. There is no growth engine to pull the train.

WITH PRESIDENT BARACK OBAMA winning a second term, businesses are showing signs of sitting on their hands. Capital spending this year was pulled forward by the ability to accelerate depreciation, but that benefit expires at the end of 2012. Regardless of whether there's a fiscal cliff, major industries such as defense, coal, energy service, and medical devices will be hurt by the administration's policies. Defense contractors already are sending out thousands of layoff notices.

Dan Picasso for Barron's

Obamacare is a huge negative, which will accelerate the trend of shifting from full-time to part-time workers. Millions of people will be forced to work fewer hours, thereby losing their employer-sponsored health-care insurance. This will vastly increase the cost to workers of health-care coverage.

Unlike businesses, most families cannot deduct the premiums for tax purposes. For example, if insurance for a family of four costs $8,000 a year, the after-tax cost to corporations is only $4,800, assuming a 40% tax rate. Even if employers give this avoided cost back to employees as compensation, it is $3,200 less than it would cost workers to purchase the same coverage on their own. This is more than $60 a week, a real hit for many families.

So far, Papa John's has announced that it will shift more workers to part-time jobs to circumvent the cost of Obamacare, and other chains have said they'd like to follow suit. We should expect virtually all major players in the restaurant industry -- which employs 13 million people -- to make the change. Other industries will do so where it's feasible. The reaction to the Affordable Care Act will be a lesson in the law of unintended consequences.

Most companies are planning for 2013 and beyond, and the re-election of the president will cause them to limit spending. Obama inadvertently spelled out his philosophy of fairness when he told successful entrepreneurs that they "didn't build that." Whatever he may have meant is not as important as what business people heard: Those who succeed should be prepared to see their wealth redistributed, since any success they achieve is due to other people and the government. Combine this with increasingly burdensome regulation, the threat of higher taxes on small business, crony capitalism, favoritism to labor unions, and Obamacare, and you have the least hospitable environment for business since the New Deal.

We should expect a recession within the next six to nine months, which will have a very deleterious effect on corporate profits. It should not be a big surprise to see earnings down 20% or more in the next few years.

THE OTHER VARIABLE is the price-earnings ratio of the stock market. On estimated earnings for 2012, stocks are selling for about 13 times earnings, which is not excessive relative to interest rates. But trouble lies ahead. The Fed's balance sheet is leveraged more than 50 to 1, which is greater than that of the major banks before the financial meltdown. A mere 50-basis-point rise in the yield on the Fed's portfolio would wipe out the equity of our central bank.

If a second Obama administration can continue trillion-dollar-a-year deficits, the government sector will grow at the expense of the private sector.

Recall that a few months ago Obama said the private sector is doing "just fine." How can the private sector be doing fine with more than 22 million people looking for full-time work and the lowest labor-participation rate since 1981? The president thinks help for them lies in the government hiring millions of new workers. This does not bode well for cuts in government spending.

Are the deficits sustainable? At some point, interest rates will rise as lenders become more concerned about our deficits and national debt. At that point, stocks will face more competition from fixed-income securities. Stock prices will have to fall.

From a big-picture standpoint, it's undeniable that our country is becoming a welfare state. There are over 48 million people on food stamps, and structural unemployment is rising as U.S. education fails to keep pace with the rest of the world.

The fact that Obama could win a second term, having presided over the worst economic recovery on record, is evidence that voters are more interested in which leaders will extend entitlements the longest, rather than which ones can accelerate economic growth. There are plenty of examples of welfare states in Southern Europe, and their stock markets are not exactly flourishing.

As a portfolio manager, I would value the stock market of our welfare state like those of Southern Europe, at no more than 10 times earnings. Multiplying that times S&P earnings 20% lower than 2012 takes the S&P to 800, down 44% from where it is today.

ROBERT M. SUSSMAN is the president of Bentley Capital Management, a hedge fund based in New York City.